Call it Greece’s China moment. Like an economy run into the ground by decades of socialism, as China’s was before the country began reforms in 1978, Greece’s political and economic order had failed. Greece wasn’t crushed by Maoism but by its $400 billion national debt. When the market for Greek bonds dramatically collapsed in the spring of 2010, the country’s prime minister, George Papandreou, managed to secure a $140 billion credit line from the European Union and the International Monetary Fund—under the strict condition that he slash public spending, raise taxes, and reform the Greek economy.

"No interest until 2014," read the massive red sign outside Big’s Furniture in Henderson, Nev. It beckoned Diane Lewis to the store’s year-end liquidation sale. “I had to pull in,” she said as her sons frolicked on mattresses nearby.

After its $140 billion EU and IMF bailout in May, Greece has found another big spender: China, which has dramatically boosted investments in the country. Recent agreements include $5 billion to upgrade Greece’s merchant marine, a 35-year deal to lease and operate the country’s main port, and the building of a logistics terminal to connect with southeastern Europe. China also plans investments in construction, telecoms, tourism, and railways—plus the purchase of 290 tons of olive oil. Premier Wen Jiabao also promised to keep buying Greek government bonds, which helped spur the euro to an eight-month high against the dollar last week.

Even as Washington and Beijing slug it out over trade deficits and exchange rates, Europe has quietly overtaken America as China’s No. 1 trade partner. Not only did Chinese trade with the EU soar to $306 billion through July of this year—compared with $243 billion of trade with the U.S.—China has also become far more dependent on Europe for importing the technology and infrastructure that underpin its breakneck development.

Decades after such figures appeared elsewhere in Europe, Germany finally has produced its own high-profile star of the anti-immigrant right. But only for about a week. Thilo Sarrazin, a former Social Democratic politician, set off the fiercest storm of public outrage in recent memory with his new book, "Germany Abolishes Itself," in which he lays bare the failures of German education, migration, and welfare policies.

Economists used to ridicule the idea of “decoupling”—that the economies of China and other emerging powers could move independently of developments in the West. The recession refuted them. Now markets are starting to recouple again—except the other way around: China has turned into a locomotive for Western growth.

Almost three years after the first tremors of the financial crisis, Europe is finally running “stress tests” on its banks. The results, due this week, are supposed to restore the confidence of weary investors by declaring which financial institutions are reliable enough to survive market shocks.

On Sunday, Poles voted for a new president in an election noted less for its outcome than for its tragic circumstance—the emergency vote followed the April 10 plane crash that killed the previous president and his wife along with the head of the Polish central bank, the armed forces chief of staff, and 84 other high-ranking Polish officials.

Blaming foreign speculators for the continent’s troubles may be a popular sport in Paris and Berlin, but most of those problems are entirely homegrown. Europe’s dirty secret is that its banking sector is sicker than Wall Street.

Blame economic worries, another freezing winter, or the cascade of scandals emerging from the world’s leading climate-research body. But concern over global warming has cooled down dramatically. In über-green Germany, only 42 percent of citizens worry about global warming now, down from 62 percent in 2006.

Scenarios for Europe’s doom are multiplying after last week’s trillion-dollar emergency bailout of Greece and other over-indebted southern European countries by fellow European Union members and the International Monetary Fund. But viewed from 2020, this crisis could well have been the catalyst Europe needed to solve a number of problems—overspending governments, inflexible labor markets, and otherwise overregulated economies—its leaders deliberately ignored in rosier days, when attacking them might have cost them votes.

Europe's gargantuan bond and bank bailout this weekend is nothing but "morphine to stabilize the patient," according to the International Monetary Fund's Director for Europe, Mark Belka. The joint deal by the European Union and the IMF to pump up to one trillion dollars in loans and guarantees into Greece and other European countries threatened by government insolvency was far larger than expected, a case of shock and awe that has for now impressed the markets. Finally European leaders ended their months of fiddling while Athens burned and burned. By the end of trading Monday, European stocks were up a spectacular 7.39 percent....

Europe stood at the precipice of another financial crisis last week as Greece, for all intents and purposes, went bankrupt. The interest rate on Greek bonds briefly shot up to an eye-popping 38 percent—the result of a market frozen by investors’ worries about a default. To stave off collapse, European leaders and the International Monetary Fund hastily arranged a bailout totaling as much as $185 billion—more than three times the amount officials initially estimated. The lenders are extracting their pound of flesh: Greece will have to slash its public deficit and gouge wages as a way of rehabilitating its economy.

Europe stood at the precipice of another financial crisis last week as Greece, for all intents and purposes, went bankrupt. The interest rate on Greek bonds briefly shot up to an eye-popping 38 percent--the result of a market frozen by investors' worries about a default. To stave off collapse, European leaders and the International Monetary Fund hastily arranged a bailout totaling as much as $185 billion--more than three times the amount officials initially estimated. The lenders are extracting their pound of flesh: Greece will have to slash its public deficit and gouge wages as a way of rehabilitating its economy....

When Greece first appeared to be on the brink of default, analysts looked for signs of a euro-zone breakup, as stronger countries like Germany balked on funneling their taxpayer euros to rescue dissolute southern economies. Now, as Europe inches toward a Greek bailout, that danger seems to be receding. But a new one's cropped up in its place. As some economists, including Morgan Stanley's Joachim Fels, now speculate, the bailout may actually raise the risk that Germany will decide to exit the euro zone to save its own neck. German Chancellor Angela Merkel is facing rising discontent at home, as voters remember the old pledges that Germans would never have to bail out profligate economies to the south. If Germany were to leave—perhaps along with economic allies such as the Netherlands, Finland, and possibly France—it would not only soothe domestic worries but also spare the mess of making struggling southern economies choose between default on the one hand and austerity...

Greece holds the record for the developed world's most crooked economy: with fully one quarter of its GDP earned off the books in illegal construction and unreported employment, Greece could easily have avoided its debt crisis had it found a way to tax even half of that income. But the shadow economy is far more widespread in the West than a few corrupt Mediterranean nations. Germany and Scandinavia, for example, have huge shadow economies that are only 30 percent smaller than Europe's south. "That's a much smaller difference than cultural stereotypes would suggest," says Lars Feld, coauthor of a recent survey of the world's underground economies. The reason: in the north, burdensome taxes and heavy regulation drive millions to supplement incomes under the table. The one virtuous economy, at least in this respect, is the U.S., where shadow activity accounts for only 7.8 percent of GDP. Now Europe's underground economy is growing again after a...

Europe's public debt crisis has lead to clamorous predictions of the euro zone's imminent breakup. With Greece already threatened by government default, last week attention shifted to Spain, a much larger economy stuck in a downward spiral of 20 percent unemployment, ongoing recession, and a public deficit that's soared past 11 percent of GDP. With richer euro-zone members like Germany balking at a bailout, some analysts argue the only way for these countries to save themselves is by exiting the euro zone and reintroducing their own currencies.But were an ailing country to leave, it would find itself in the mother of all financial crises as its new currency plummeted on world markets. Furthermore, expulsion by other members is prohibited by Europe's new Lisbon Treaty. And the history of currency unions shows that they aren't held together (or dissolved) on economic grounds but on political ones. It took the U.S. more than a century and many crises to install...

First there was Enron; then, subprime. Now it turns out that some governments have been just as adept at using financial alchemy to hide debts. Take Greece, a country with a $350 billion national debt that is now under investigation by the European Commission (EC) for underreporting its deficit by as much as 9 percent of GDP in 2009. It used derivatives devised by Goldman Sachs to give itself an off-the-book loan, sold future EU subsidies and lottery earnings to investment banks for upfront cash, and raised money by mortgaging its highways and airports....